You don’t know what tomorrow will bring, so you’ll need to hope for the best and be prepared for the worst. For a self-employed person or business owner, that means planning for what happens if you were to die tomorrow.
“It’s a tough subject to talk about, but we bring it up with all our clients,” says Andrea Bone of Accounting and Business Partners. “Tax time is the ideal time for a check-in on your estate plan. You should take a look at your wills and insurance policies every year to make sure they’re updated and reflect your current situation.” Bone says it’s difficult enough for spouses or children to manage your personal estate while deep in grief. They shouldn’t have to take on your business as well.
Bone says business owners should start thinking about a plan for managing, selling, or dissolving the business long before they think they’ll need a plan. It starts with a series of questions about how to take care of the essentials: “your clients, your staff, and your stuff.”
- If you died tomorrow, who would manage the work in process and take care of your customers’ immediate needs? Who would your company refer your clients to? Who would notify your other clients?
- If your spouse inherited the business, do they have an interest in operating it? Do they have the expertise to manage the work? Who will be the person in charge during the transition of ownership?
- If you have a partner, do you have a buy/sell agreement in place to protect them? The buy/sell agreement allows the partner first refusal to buy out the spouse or sell their share of the business to the spouse, so neither party is forced into a partnership they may not want.
- Do you want the business to be sold after you die? If you can’t find a buyer, what happens to the business’s assets? Who will be in charge of the sale or the dissolution?
- Who will shut down the business? Cancel insurance policies, shut down bank accounts? Close down your website and social media accounts? Notify the state and the IRS?
- What happens to your staff? Will they finish the work in process? Who’s in charge of the work they complete or refunding customers for work they can’t? Who will process the company’s final payroll? Who will send out the W2s and 1099s at the end of the year?
A thousand details have to be managed, and your family may not be up to the task. Creating a detailed plan, making arrangements for the most important priorities, and designating a trustee for the business and its assets, is more than simply being proactive; it’s an act of love.
Your CPA can help build your plan and make sure you have the right insurance coverage if the unexpected happens. “For instance, there’s a life insurance policy called a ‘Key Man’ policy,” says Bone. “When a principal of the company dies – whether it’s an owner, partner, general manager, or another indispensable staff member, the policy provides funds to conduct a search and compensate a new hire. Our job is to advise our clients on how to protect their business with tools like this.”
Bone says her firm has the ability and capacity to serve as a trustee, which not all CPAs are able or willing to do. It’s an important service for clients who don’t have close family or friends to manage a trust or close down the business if the owner dies. Bone says they can also work closely with lawyers to provide important information about the estate and the company. “Because we do the tax prep, we have critical information in our files,” says Bone. “We have lists of company assets and their value, vehicles with mileage, leases for buildings – we can save the family and attorney a lot of time and resources they would have to spend doing research.”
Bone recommends that every self-employed person or business owner do an estate checkup after filing their taxes. It’s a great time to make sure you’ve got everything organized, just in case. As with any preparation for your own passing, she says, it’s really about taking care of the people left behind.
About The Contributor:
Andrea Bone is the Founder & CEO of Accounting & Business Partners. As a hands-on controller for multiple businesses of various sizes from 1995 to 2022, she has been responsible for all the “back office” operations. Her firm manages accounting, payroll, human resources, taxes, banking, insurance, and legal work. Her favorite part of working with business owner clients is seeing them achieve their goals.
Andrea holds a Bachelor of Science in Accounting from the University of Texas at Dallas and a Master’s degree in Business from Texas A&M University Corpus Christi. She is a Certified Public Accountant and has over 25 years of experience running businesses as a financial controller and CFO.